Basics of GST – Implementation In India

India currently has a dual system of taxation of goods and services, which is quite different from dual GST. Taxes on goods are described as “VAT” at both Central and State level. It has adopted value added tax principle with input tax credit mechanism for taxation of goods and services, respectively, with limited cross-levy set-off. The present tax structure can best be described by the following chart:

SHORTCOMINGS IN THE PRESENT STRUCTURE AND NEED OF GST

Tax Cascading: The most significant contributing factor to tax cascading is the partial coverage by Central and State taxes. The exempt sectors are not allowed to claim any credit for the Cenvat or the Service Tax paid on their inputs.

Levy of Excise Duty on manufacturing point : The CENVAT is levied on goods manufactured or produced in India. Limiting the tax to the point of manufacturing is a severe impediment to an efficient and neutral application of tax. Taxable event at manufacturing point itself forms a narrow base. For example, valuation as per excise valuation rules of a product, whose consumer price is Rs. 100/-, is, say, Rs. 70/-. In such a case, excise duty as per the present provisions is payable only on Rs.70/-, and not on Rs.100/-.

Complexity in determining the nature of transaction – Sale vs. Service

Inability of States to levy tax on services : With no powers to levy tax on incomes or the fastest growing components of consumer expenditures, the States have to rely almost exclusively on compliance improvements or rate increases for any buoyancy in their own-source revenues.

Lack of Uniformity in Provisions and Rates

Fixation of situs – Local Sale vs. Central Sale

Interpretational Issues: whether an activity is sale or works contract; sale or service, is not free from doubt in many cases.

Narrow Base

Complexities in Administration GST (Goods and Service Tax)

GST means Goods and Service Tax. It is an indirect tax levied on sale of goods and services. The reformists believe that GST is one of the most awaited law which upon introduced will boost the economic growth in the country. This law if passed by the parliament may come into force from April 2016. As everyone is talking about it now, let’s get into the basics of the proposed law in this article.

Present system – This can be better explained through an example. Suppose you buy soap for Rs.50 per piece, it includes Excise Duty, VAT or CST, Customs duty on the imported raw materials, etc. So, currently you will have to pay multiple taxes on the same product. Let’s take another example; the food you buy at hotels will have VAT as well as Service Tax.

Complexities in the present system – The taxes are levied by central government as well as state governments. So, the businessman has to maintain accounts which will comply with all the applicable laws. It is perceived to be a complex system. Hence, worldwide over 150 countries have adopted GST, a simple tax system. Though it is late, India is catching up with the global trends.

Is it easy to implement in India? Not really. Today states have autonomy in collecting state taxes. They have the feeling of losing their rights! They want liquor, fuel to be out of GST tax system. They are also worried about Central government sharing GST revenue with the states. If India becomes one common market, then the states will have to share their powers of taxing with the union government. (Which means states can’t increase the taxes as and when, as much as they want)

If the GST bill is passed; will it come into effect immediately? NO. The earliest day we can see GST in India will be in April 2016. Again implementation depends upon the initiative and involvement of state governments. Some of the states may act quickly and some of them may take time to implement.

GST Rate- Today, one pays Excise Duty of 12%, VAT of 14% on goods (totaling to 26%). 12% service tax on services. So, the rates may be anywhere between 12% and 26%. The average worldwide GST rate is around 18%.

FEATURES OF AN IDEAL GST

The main features of GST are as under:-

(a) GST is based on the principle of value added tax and either “input tax method” or “subtraction” method, with emphasis on voluntary compliance and accounts based system.

(b) It is a comprehensive levy and collection on both goods and services at the same rate with benefit of input tax credit or subtraction of value of penultimate transaction value.

(c) Minimum number of floor rates of tax, generally, not exceeding two rates.

(f) Zero rating of exports and inter State sales of goods and supply of services.

(g) Taxing of capital goods and inputs whether goods or services relatable to manufacture at lower rate, so as to reduce inventory carrying cost and cost of production.

(h) A common law and procedures throughout the country under a single administration.

(i) GST is a destination based tax and levied at single point at the time of consumption of goods or services by the ultimate consumer.

MODELS OF GST

There are three prime models of GST:

GST at Central (Union) Government Level only

GST at State Government Level only

GST at both, Union and State Government Levels

EXPECTED MODEL OF GST IN INDIA- DUAL GST

In India, the GST model will be “dual GST” having both Central and State GST component levied on the same base. All goods and services barring a few exceptions will be brought into the GST base. Importantly, there will be no distinction between goods and services for the purpose of the tax with common legislations applicable to both.

For Example, if a product have levy at a base price of Rs. 100 and rate of CGST and SGST are 8% then in such case both CGST and SGST will be charged on Rs 100 i.e. CGST will be Rs 8 and SGST will be Rs.8.

Interestingly, as per the recommendations of Joint Working Group (JWG) appointed by the Empowered Committee in May 2007, the GST in India may not have a dual VAT structure exactly but it will be a quadruple tax structure. It may have four components, namely – (a) a Central tax on goods extending up to the retail level; (b) a Central service tax; (c) a State-VAT on goods; and (d) a State-VAT on services.

The significant features of Dual GST recommended in India, in conjunction with the recommendations by the JWG, are as under:

1. There will be Central GST to be administered by the Central Government and there will be State GST to be administered by State Governments.

2. Central GST will replace existing CENVAT and service tax and the State GST will replace State VAT.

3. Central GST may subsume following indirect taxes on supplies of goods and services: Central Excise Duties (CENVAT)· Additional excise duties including those levied under Additional Duties· of Excise (Goods of Special Importance) Act, 1957. Additional customs duties in the nature of countervailing duties, i.e.,· CVD, SAD and other domestic taxes imposed on imports to achieve a level playing field between domestic and imported goods which are currently classified as customs duties. Cesses levied by the Union viz., cess on rubber, tea, coffee etc.· Service Tax· Central Sales Tax – To be completely phased out· Surcharges levied by the Union viz., National Calamity Contingent Duty,· Education Cess, Special Additional Duties of Excise on Motor-Spirit and High Speed Diesel (HSD).

4. State GST may subsume following State taxes: Value Added Tax· Purchase Tax· State Excise Duty (except on liquor)· Entertainment Tax (unless it is levied by the local bodies)· Luxury Tax· Octroi Entry Tax in lieu of Octroi· Taxes on Lottery, Betting and Gambling·

5. The proposed GST will have two components – Central GST and State GST – the rates of which will be prescribed separately keeping in view the revenue considerations, total tax burden and the acceptability of the tax.

6. Taxable event in case of goods would be ‘sale’ instead of ‘manufacture’.

7. Exports will be zero rated and will be relieved of all embedded taxes and levies at both Central and State level.

8. The JWG has also proposed a list of exempted goods, which includes items, such as, life saving drugs, fertilizers, agricultural implements, books and several food items.

9. Certain components of petroleum, liquor and tobacco are likely to be outside the GST structure. Further, State Excise on liquor may also be kept outside the GST.

10. Taxes collected by Local Bodies would not get subsumed in the proposed GST system.

As per the proposed GST regime, the input of Central GST can be utilized only for payment of CGST & the input of State GST can be utilized only for payment of SGST. Cross- Utilization of input of CGST in payment of SGST and vice-a- versa, will not be allowed. (Source:- Hindu Business Line, dated 30-06-2009)– Railways and Construction Sector might be included in GST

– Liquor, Petro Sector, Taxes of Local Bodies might be out of GST

– Stamp Duty – It has not yet been decided whether stamp duty will be part of the GST or not.

*Sources of the above information – Back Ground Material Issued by ICAI on GST.

77 Replies to “Basics of GST – Implementation In India”

Sir, a) in case of an inter-state Sale from Maharashtra (GST registration in Maharashtra) to Tamilnadu, will the GST invoice levying IGST be issued from Maharashtra and the IGST will be paid in Maharashtra? OR

b) in above case, will the GST invoice be raised in Tamilnadu (by obtaining GST registration in Tamilnadu) , by levying IGST and will it be paid in Tamilnadu?

If (b) is applicable, then does one need to obtain GST registration in each state, wherever the sale is made from Maharashtra, even if there is only transaction of inter- sale in a year in that state?

In case of inter state sales, the tax is tracked through the IGST / CGST registration numbers of both the buyer and the seller. Ideally there should be only one registration number for a legal entity across the country and the same should be used for the CGST and IGST, this will ensure that, the thresholds are tracked correctly all transactions are under the tax preview.
The seller will pay the tax to the central government, the way CST is paid today and there is a mechanism being proposed to transfer the tax from the selling state to the buying state.
This is my view based on the information i have from the secondary media.

You can take ITC (input tax credit) of IGST, CGST and SGST. However, more clarification is yet to come on offsetting capability of IGST, CGST and SGST on one to one, one to many or many to many.

In case if any one is in to business of selling excise free goods was not able to take ITC on service tax paid. Now, Service Tax is subsumed in GST hence ITC is possible even on service purchased. So, such companies shall be benefitted.

Dear Sir, This webpage is really good and made simple to understand. My heartly appreciation for you

Having Dual GST, Dual rate structure is again complicating the administrative work to everyone. What is it stopping the government (Other than revenue sharing threat of states) in implementing on law pan India with one rate. Also, why should Fuel, Liquor be excluded from this.
By excluding these, again we are giving room to business men to do all unlawful practices…

Even the revenue sharing can be addressed with a SLA being agreed between Central & State based on putting a rational basis in sharing the revenue.

WE R MANUFACTURING SPICES, BABAY CERIALS. IS GST IS SINGLE POINT TAX OR MULTIPLT POINT TAX LIKE ALL CHAIN MEMBERS LIKE DISTRU]IBUTORS, RETAILERS, SUPERSTOCKIST HAVE TO PAY GST THEN TAX SUPPOSE 15% WILL BE 45 % IN ALL CHAIN HOLDERS, I.E WE HAVE BILL BY ADDING GST IN INVOICE. IF U HAVE HAVE ANY INVOICE PL GIVE EXAMPLE.PL INFORM .THANKS

It is definitely multi point tax but it is not cascading. Hence, 15% tax will not become 45% if it change hands from Company to Distributor to Retailer. Because, at each stage each channel member can take Input Tax Credit.

Example.: If you buy Black Pepper @ Rs 60000 per qtl plus GST (15%) in Kochi, your purchase bill will have following components.:

We are excise registered dealer. We need to pass on the excise duty to our customers. Its bit difficult to maintain these records . Even to generate bill is bit tricky.
For CGST the system will be the same or we can take input tax credit as VAT in Maharashtra.

Excise will cease to exist and all taxes shall be subsumed in IGST, GST (CGST + SGST) and OT.

Now, OT is not cenVATable. Except that.:

1. All output CGST shall first be adjusted by input CGST and input IGST in that sequence within that respective state.
2. All output SGST shall first be adjusted by input SGST and input IGST in that sequence within that respective state.
3. All output IGST shall fist be adjusted by input IGST, input CGST and input SGST in that sequence within that respective state.

suppose i am a trader in gujarat and i buy tea worth rs 100000 (one lakh) from west bengal, and rate of GST is 20 %. Then this 20 % tax will be collected at which stages. will it be 10 % CGST to be collected in west bangal and other 10 % on sales in Gujarat???

We manufacture packing material for pharma units in Himachal and all my customers are based in Himachal only. These pharma units on the other hand, supply all their goods outside the state. Will these pharma units be able claim 100% motvat on goods purchased from us ?

can you inform me what is the net rate government is targeting at?
In simple words:
I am a manufacturer .
My input cost is Rs 116/- [Rs 100+16(GST)]
My sale price is Rs 150/ . I collect totally Rs 174/ (150+24=174) from the buyer.
I pay Rs 8 as GST (24-16=8).

Therefore, net tax rate for me is 5.33% i.e. Rs 8 on a sale of Rs 150.
My query is “what is this rate (net tax rate) the government is having in its mind?
can anyone enlighten and guide mo on this?
Thanks.

There is nothing like “My” net tax rate or “Your” net tax rate. If I consider the above example as it is, the government is eying at 16% of VAT rate. So, if I change your example at 100 Rs purchase rate and 200 Rs sale rate, “your” net tax shall work out to 8% (16/200). But this is not relevant. It is simple value addition and the “My” tax rate is only tax on value addition.

If I alter example, where you sell 100 Rs. material as 100 Rs. The “My” Tax rate shall work out at 0% (0/100). But, it is not reality. It is 16% only which was collected at root level

HOW WILL THE COMMERCIAL TAX DEPARTMENT OF THE STATE GOVERMENTS BE EFFECTED? WILL THEIR SIGNIFICANCE COME DOWN? IT LOOKS LIKE THE CGST AND SGST WILL FUNCTION IN SIMILAR WAY? SO WILL THE SALARY OF THE OFFICERS OF BOTH BE MADE COMPARABLE IF THEY CARRY SAME DESIGNATION IN THE CGST AND SGST RESPECTIVELY?
PLEASE DO REPLY AS I AM A COMPETETIVE EXAM ASPIRANT AND LOOKING FORWARD TO A JOB IN COMMERCIAL TAX DEPARTMENT? OR SHOULD I OPT FOR CENTRAL EXCISE DEPARTMENT?

Tax classification is still on the brim of the glass.
The outcome can not be foreseen with the view of how the tax departments holds it hierarchy.
The future beholds in the hands of the center and state equally, for the only reason that GST is going to grow along with India’s growth story. Please reevaluate your preferences and decide accordingly.

There should be no classification of tax by city. Big or small, they shall be taxed equally depending on the tariff. Please use search option to find industry specific news. Thanks for visiting the site !

1. can GST be also non-deductible i.e. no credit? If yes, then in what cases?
2. in the current environment, when goods leave the factory, an excise invoice is created. in GST environment what kind of document would be created?
3. as a receiver of goods from vendor, at present I book excise invoice at the time of goods receipt. what will happen under GST?

The below views are personal.
1. If gst comes on “no-set off” basis then the entire purpose of bringing gst will be defeated. But I am sure there will be intermediate ways to give small dealers a composition scheme as an option.
2. I am not an expert in excise, but government is trying to build a seamless platform for invoicing, which will be tracked thoroughly by the government. Eg: SAP is also there for building GST’s platform in India.
3. Managing of invoices will be more or less similar to VAT/CST structure as it seems more friendlier.

I am am a manufacturer of t shirts in Tamilnadu & I sell my products to schools in other states, who are not registered dealers, under GST how do I sell to unregistered dealer, if I want to sell to other states who are not registered dealers, do it need to register in every state ?

In GST regime, there shall be PAN India Registration. As far as selling to URD is concerned, you just have to collect the tax from them and pay to government. URD(UnRegistered Dealers) shall be taken care by the government.

Sir,
I got registration in Kerala for service tax and I am collecting the same from my client and remitting the same. What happen when GST will come ,
1. Can I take State Registration or keeping the old registration and doing the same what I am doing ?
2. If I taking the State Registration If I am collecting service tax from Other States what should I do ?

How does a GST affect Apartment Complex. if maintenance charges is above 5000 service tax is applicable.
is there any ruling to this effect or will it out of GST. if it there how does GST work in this case.

1. Imports – Incase of Imports how GST will be charged. Currently when we import, we cannot offer the duty against Sales tax (like we do in normal purchases). So after implementation of GST what will be the scenario ?

2. VAT – Currently VAT on some products is 1%, 5% and 12.5%. So does it mean after GST is implemented, sellers paying VAT 1% or 5% or 12.5% will have to pay 18-20% GST ? What will be the effect to seller paying only 1% or 5% VAT or Sales Tax as per present system?

1. The basic criteria for bringing GST is to seamlessly make Input tax credit (ITC) available, including import duty. It should bring in a big advantage for importers when the actual GST law is made available. Also am sure many other tax experts visiting this site should feel free to comment on your concern.

2. Initially it seems the commodities which are charged at lower VAT rates will be charged at applicable GST rates, may be quiet higher than 1 or 5 %. But they shall also be eligible for any set-off (ITC) on purchases made across PAN-India, including the higher GST rates. So net-net the GST effect will start becoming fruit full in couple of years after implementation.

Also you can check the link below:-

There are few downloadable documents available in the DOWNLOAD section, which shall help you to understand better. Its a learning Phase for all of us.

Dear Sir, Give me some information about GST On Work Contracts what effect of GST on work contract services, when levy GST,My Work Contract till now under 40% Tax part Under Scheme . But When GST is levy than what effect on Tax Rate Give Information With Example

What is the point of taxation for goods? What is the point of taxation for services?

Meaning, they say that the time of supply rules apply. So shall i understand that either the removal, or the payment, or the invoicing or the supply, whatever happens first, that moment the tax is supposed to be paid?

If that is the case, in case of payment, what is the base document for recording the transaction? Invoice is not available!

Can someone please share the concept of GST related to this preferably with example.

Hello,
GST has technically covered a lot of ground in past two years. Once approved by Rajyasabha of Indian parliament, GST can be implemented very soon. Probable date can be in 1st April 2017.
Thanks for visiting.

Hi
Dealer will not be required to register in individual states. The existing registration will have sufficient time for GST re-registration, which will work for states all over India. Thanks and keep visited. There might be diverse opinion for same so please reconfirm. Bye

What will be the process for Supplier Returns / Customer Return ? How GSTR1 or any other document changes because of return.
How advance payment will be handled in GST ?
How GST will impact sub-contracting?
Impact of GST on inbound and outbound warehouses ?

Hi . There is a good chance that there can be an escalation on cost initially, specially in unorganised category. But it all depends on probable understanding of the law. Will have to wait and watch for this one.

What about existing Invoice/bills.. Will GST be applicable on them too..

Mostly looking at the Invoice which are charged for the entire year (membership charges for gym). how will GST impact those bills. If they have been created but not paid.. Or also if created and paid, but as the service is being rendered throughout the year will GST be applied.

I believe the concept of consignment is not allowed under GST, but what does ‘consignment’, in this sense mean? For example, an art dealer works on consignment. I.e. they take the painting/sculptures from the artist, and only raise an invoice when they have sold the piece. How does an art gallery/dealer now work? Must they buy all the paintings and pay taxes, before they can ensure a sale? No article I have read has given me any clarity on this concept. If you could please give us some guidance.

We’ve a few products which in pre-GST era were liable for ‘State Excise duty’ due to alcoholic content. In the absence of LUT/Bond, we had exported these products by charging off State excise duty and used to claim this paid state excise duty as rebate (not refund – as refund was not allowed). This rebate is like our current account balance against which state excise duty payable on local sales used to get adjusted.
As at 30.6.2017, we’ve huge balance of this rebate around Rs.14 lakhs. So, how should this be treated in GST era?